The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
5 - 9 de Mayo de 2008

The World

Swallowing the chewing gum. Well maybe not the chewing gum, but the market was abuzz last week as Mars swallowed (aka acquired) Wm. Wrigley Jr. Co. Mars with their wide range of products and brands is already said to have a significant presence in the confectionery market. They are the world’s largest chocolate manufacture, measured by sales, “with a market share of 15 percent.” Yet, Mars is strong in the U.S. market while Wrigely’s “generates most of [their] sales outside of the U.S.” What the deal does is create a global confectionery giant. As a result of the acquisition Mars will now have “a strong foundation of established brand in six core growth categories – chocolate, non-chocolate confectionery, gum, food, drinks and pet care”. Interestingly, Wrigley had been active in acquiring confectionery companies in order to diversify further outside of the chewing gum category. They acquired Kraft’s candy assets in 2005 and just awhile back they bought a Russian chocolate company. What most analysts are now saying is that this deal will generate consolidation in the confectionery market. All eyes now are on Hershey and Cadbury. The thinking is that this will be a natural, combining Hershey’s strength in the U.S. market with Cadbury’s global reach. Hershey, however, has proven itself to be a reluctant target, so it’s not a done deal. Cadbury, now that it is spinning off Schweppes, is expecting to be anxious for a deal. If Hershey continues to play hard to get, don’t be surprised to see Cadbury going after other targets.

Another entry into the ‘free from’ market. Increasing consumer concerns that relate what they eat with their health has both created complications and opportunities for food manufactures. We are seeing the development of what some analysts are calling the “free from” market. The concept is, obviously, somewhat nebulous; nevertheless it is a fair reflection of what is occurring in the marketplace. The ‘free from’ market, in fact, is said to have “enjoyed annual sales growth of over 300 percent since 2000’. The latest entry into the market is General Mills. They are changing the formula for their Rice Chex cereal to be gluten free. What is interesting here is not so much that they want to differentiate the cereal, but rather they see gluten free cereals as a new niche. With some one in 133 consumers in the U.S. with celiac disease who have to avoid gluten, the size of the market is estimated to reach US$1.7 billion by 2010. Yet, there are hardly any gluten free breakfast cereals on the market. Other cereal manufactures will be watching General Mills. To the extent there is a movement in Rice Chex sales, we can expect more gluten free cereals on the market.

Mexico

Tequila – an image makeover. Looking at exports, since 2002 exports of tequila to the U.S. have grown by over 45 percent. What seems to be behind this continued strong export growth is a change in perception of tequila in that market. It has moved into the “connoisseur” segment of the spirits market. While marketing had a lot to do with the change in perception, the agave crisis pushed up tequila prices and consumers tend to associate price with quality and status. The result is that upper end products are driving the market: “super-premium [tequilas are] averaging a robust 30.8% annual growth since 2002” in that market. Don’t worry about running out of tequila, at least for the time being. We are in the top range of the agave production cycle.